Energy Market Update 6-6-2023

Crude is down $1.30    RB is up 1.13 cents     ULSD is down 2.51 cents

Overview

Crude prices have retreated today as worries about economic growth trump the surprise Saudi production cut announcement. RB is higher. We wonder if this is due to the loss of refinery output at the Calcasieu refinery in Louisiana. The unit has a capacity of 135 MBPD.

The notion of slower economic growth was underscored by Monday's U.S. services sector ISM. May's reading was 50.3, down from April's level of 51.9 and below the Reuters poll forecast of 52.2. The weaker number reinforces the belief that the Fed will pause their rate hikes at their June 13-14 meeting. (Reuters)

On Monday, the Saudis raised their OSP's to Asia for all crude grades by 45 cents for July contract deliverables. This is a clear sign of the Saudis' intent to raise income, especially in light of the fact that last week, Reuters reporting had cited sources in Asia expecting OSP's to be lowered by $1 due to weak refining margins and soft Mideast crude premiums. OSP's for July to the U.S. and NW Europe were raised by 90 cents and by 60 cents to the Med. The more expensive Saudi oil prices could prompt refiners to seek cheaper alternative supplies from the regional spot market or arbitrage cargoes from further afield. (Refinitiv) A Reuters analyst writes : " OSP levels reflect Aramco's view of actual physical market conditions." "Raising prices is typically taken as an indication that it is optimistic about demand.", as per WSJ commentary. They, thus, believe that the marketplace can absorb an increase. Yet, Platts reporting has Asian refiners easing back on Saudi oil purchases under term contracts due to the OSP hike. The refiners may prefer buying spot barrels, which are seen as cheaper, Platts adds. In the last cycle for June, Chinese buyers had cut at least 5 MMBBL of term nominations from May in reaction to refiners seeing Aramco's OSPs as being still too high; China has sourced more cheaper Russian crude in recent months.

Reuters commentary regarding the Saudi "surprise" oil production cut reads as follows: "The move has paved the way to tighter supplies and put a $70 a barrel floor under prices, analysts said, however the Saudi cut is not likely to drive prices sharply higher immediately as it will take time for inventories to be drawn down." Other comments we have read suggest that the Saudis could not get other nations to cut their output. The cut is currently for only the month of July. Some African states, who were forced Sunday to give up some of their allocated quotas for next year, told colleagues that they didn't plan to stick to those limits, delegates said. (WSJ) Analysts at investment bank Jefferies noted the changes “will result in an actual increase of supply because the UAE can easily deliver the higher output while the others were already producing below target.” (EnergyIntelligence)

Retail diesel prices as measured by the Department of Energy/Energy Information Administration weekly average retail price dropped Monday for the 17th time in 18 weeks. The price, used as the basis for most fuel surcharges, fell 5.8 cents a gallon to $3.797 a gallon. It’s the lowest weekly price since Jan. 24, 2022. This comes even as the DOE stats issued last week showed ULSD inventories below 100 MMBBL, according to freightwaves reporting. Stockpiles are below 100 MMBBL; they have been under that psychological benchmark for several weeks, only the third time in recent years that stocks fell below 100 MMBBL. Those other two times were last fall and spring when retail diesel prices were well above $5 a gallon.

The EIA is due to release its Short-Term Energy Outlook (STEO) on Tuesday afternoon. OPEC's report will be released next Tuesday (6/13) followed the next day by the IEA's monthly report.

Technicals

The gaps seen over the weekend on the DC charts for Rb and crude were filled Monday.

WTI spot futures have support near $70 then at 69.13-14. Resistance lies at 73.79-73.89.

RB spot future see support at 2.4650-70. Resistance lies at 2.5750-75.

ULSD spot futures support comes in at 2.3115-2.3147. Resistance lies at 2.4200-2.4223.

Natural Gas- NG is down 3.3 cents

NG is lower as a cooler forecast has crept in. Next day HH prices below $2 are a drag on upside momentum for NG futures. HH next day cash is seen near $1.90. This comes even as Dallas is set to see highs of 100 degrees from June 14 to 20.

We forgot to mention yesterday that the CFTC Commitment of Traders report seen Friday showed money managers added 12,153 contracts to their net short position in the week ended Tuesday May 30. This brought their net short total to 45,060 contracts. Notable to us is the very large open interest in the July 2023 contract month on the CME. The total close of business Friday was 374,321 contracts. This is notable as the double index roll from July to September gets underway starting Wednesday. We suspect some pre-rolling has occurred already given the widening of the spread for September vs July.

NG open interest on the CME from Monday's activity showed a large increase, which we suspect is new length.

NG momentum stills points a bit lower as the overall pattern for the past 3 months has been an inability to rise over 2.675-2.685 or stay below $2. For now we see support at 2.136-2.143 and resistance at 2.312-2.317.

Disclaimer

This article and its contents are provided for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any commodity, futures contract, option contract, or other transaction. Although any statements of fact have been obtained from and are based on sources that the Firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed.

Commodity trading involves risks, and you should fully understand those risks prior to trading. Liquidity Energy LLC and its affiliates assume no liability for the use of any information contained herein. Neither the information nor any opinion expressed shall be construed as an offer to buy or sell any futures or options on futures contracts. Information contained herein was obtained from sources believed to be reliable, but is not guaranteed as to its accuracy. Any opinions expressed herein are subject to change without notice, are that of the individual, and not necessarily the opinion of Liquidity Energy LLC.